Nigeria: Assembly Potential To Create New Logistics Demands

Nigeria | Multiple Industries | Thu Jul 11, 2013

Boasting Africa's largest population, Nigeria is a consumer market waiting to explode. The appeal for autos manufacturers is therefore understandable. Currently Nigeria's autos demand needs are being met for the most part by the import of fully assembled cars, as although Nigeria has an autos assembly and manufacturing sector, its capacity utilisation stands at just 10%. The potential to revive this sector would greatly alter Nigeria's auto market's logistical needs, as assembly and manufacturing would lead to a ramp up in equipment being imported into the country in boxes. BMI highlights that Nigeria's auto outlook is mainly a domestic play, with the country's potential role as a maritime gateway for imports into the landlocked hinterland negated by low levels of population and demand from these countries. Nigeria's logistics sector could perform a role for transhipment, as considerable investment is being funnelled into the nation's ports and should the country revive its auto manufacturing and assembly sector, export logistics needs would be likely to emerge.

Key Points

Largest population in Africa and the fact it is continuing to expand is attracting companies with a consumer focus to Nigeria;

Currently the majority of autos logistics needs are met by the import of fully assembled cars;

Nigeria previously boasted a considerable auto assembly and manufacturing sector. Should this be revived the sector's logistics needs would change and become more focused on container imports for the transport of autos equipment;

Strong port throughput growth has not been matched by port expansion and so congestion is an issue;

Investment is now being made within the country's container maritime sector and international port operators are involved;

The internal transport network is underdeveloped, but there is also a lack of impetus to invest, as Nigeria's transit role is minimal and the country's commercial areas are based on the coast near the ports;

It is relatively easy to import into Nigeria as it is comparatively cheap and lead times are short. There is, however, a high level of bureaucracy and this must be addressed to further ease the burden on importers;

Nigeria's cost to export is competitive with its peers and this could drive interest in the autos sector for Nigerian auto exports to develop should the country's assembly and manufacturing sector be revived.

Developing Consumer Credentials Attracting Attention

Nigeria's population of approximately 170.9mn makes the state the largest in Africa and understandably a country of key interest to sectors associated with providing goods to consumers. In BMI's opinion, this will continue to be the case as the consumer class in Nigeria develops.

The country's consumer sector growth is being driven by a number of factors. Firstly BMI highlights Nigeria's robust economic growth outlook, with our Country Risk team forecasting Nigeria's real GDP to expand by an annual average of 7.1% over the medium term (2013-2017). Steadily this growth is trickling down through the nation's population, with GDP per capita expanding. In 2013, we project Nigeria's GDP per capita to stand at US$2,015; over the medium term we project it to grow by 56.5% to reach US$3,154 per capita in 2017.

Developing Consumer

Nigeria GDP Per Capita (US$) & Nigeria Real GDP Growth, % chg y-o-y

BMI does, however, highlight some factors that will place a drag on the development of the nation's consumer. The active population for the country comes in comparatively low at 53.8% and there are also relatively high levels of unemployment: we forecast it reaching 23.6% of the total population in 2013.

Nigeria's vastly different consumer levels are highlighted in the brands that are already supplying the market. At the top end, the premium brands of BMW and Mercedes Benz are being imported into Nigeria, targeting the consumer level that has been created by Nigeria's oil wealth. Demand for volume brands are, however, increasing, with Toyota, Kia and Ford all importing into the country.

The fact that Nigeria's consumer base is continuing to expand is highlighted by the country's auto sales. Between 2007 and 2012, vehicle unit sales in Nigeria increased by 347.8% from 12,300 units to 55,075. BMI is projecting robust vehicle sales growth to continue over the medium term, with our Autos team projecting Nigerian vehicle sales to record double digit growth. In 2013, we project the country's vehicle sales to stand at 68,419 units; by 2017 we forecast this to have increased to 135,471 units.

A Growing Market

Nigeria Vehicle Sales (units)

Currently the majority of Nigeria's demand for vehicles is met by imports. Aminu Jalal, director general of Nigeria's National Automotive Council, stated at an industry conference in December 2012 that the country's auto assembly and manufacturing plant capacity utilisation stands at just 10%.

The country has in the past boasted a relatively developed domestic car assembly and manufacturing sector. At its peak in the 1980s, Nigeria's auto assembly and manufacturing plant capacity utilisation reached 90%, with an annual installed capacity of 150,000 vehicle units. BMI highlights that there is potential for this sector to be revived, especially as demand ticks up, as we would expect international automotive manufacturers to look to develop domestic assembly plants in the country, as a way to cut costs. This will, however, require more support in terms of regulations to protect the domestic production industry, as well as more incentives along the lines of the loans being distributed to suppliers by the National Automotive Council.

Ports Preparing Should Logistics Needs Change

The revival of Nigerian auto assembly would change the logistics demands of the sector. Auto kits are shipped by container and so any expansion in this area would place a focus on Nigeria's container supply chain links and place further pressure on the nation's ports.

Nigeria's economic growth story has attracted the attention of a number of international maritime operators. This is highlighted by the fact that two major port operators, APM Terminals (APMT) and ICTSI have taken over container terminal operations at Nigerian ports and also by the level of liner connectivity at the nation's ports. According to data from UNCTADstat's Liner Connectivity Index, Nigeria ranks top out of the seven Sub-Saharan countries that we are analysing for auto-logistics potential.

The steady increase in Nigeria's connectivity with lines wanting to offer container shipping links to and from the developing country has, however, not been matched with the required expansion. While Nigeria tops the list in terms of liner connectivity, it is an underperformer in terms of port infrastructure. According to data from the Global Economic Forum's Global Competitiveness Report, the quality of Nigeria's port infrastructure places it in 106th position out of 144 states globally. In comparison with its seven Sub-Saharan peers, Nigeria is second to last, just above Tanzania.

Expansion And Investment Needed

Global Competitiveness Report Port Infrastructure Rankings

The high level of throughput growth, coupled with the lack of expansion, has led to congestion issues at the nation's ports. One of the key problems that BMI highlights that has held back expansion at ports, is that the major facilities of the port of Apapa and Tin Can Island are located adjacent to Lagos, Nigeria's main commercial city. This proximity to Nigeria's most populated city will have originally been vital for ports and is what has driven their throughput growth, but it is also what has held back expansion plans as there is insufficient room for ports to grow. BMI also highlights that the proximity of the ports to the city has also led to congestion further up the supply chain as a busy port coupled with a well populated city has led to congestion on Lagos' road network.

According to data from UNCTADstat, container throughput at Nigeria's ports has increased by 39.3% over the 2008 to 2010 period from 72,500TEU to 101,007TEU. The container terminal at Nigeria's port of Apapa, handled 600,000TEU in 2011 and is estimated by the terminals operator APMT to have reached a throughput level of 720,000TEU in 2012, a year-on-year growth of 20%. The Apapa Container Terminal is now West Africa's busiest box facility.

The growth in container throughput at Nigeria's ports shows no sign of abating. APMT, which operates at the port of Apapa, projects container traffic at the Lagos' ports to reach 2mn TEU in 2018. The issue of a lack of capacity must therefore be addressed immediately otherwise congestion will reach a level that will detrimentally impact the country's appeal to investors.

West Africa Ports 2010 Container Throughput (TEU) Overview

Port

Country

2010 Container Throughput (TEU)

Source: APMT/Bolloré/Port authorities

Port of Tema

Ghana

590,147

Port of Abidjan

Cote d' Ivoire

530,000

Port of Apapa

Nigeria

485,000

Port of Dakar

Senegal

349,231

Port of Lome

Togo

320,000

Port of Cotenou

Benin

305,000

Port of Conakry

Guinea

120,000

Port of Nouakchott

Mauritania

83,745

Port of San Pedro

Cote d' Ivoire

60,000

Port of Monrovia

Liberia

53,438

Port of Takoradi

Ghana

53,041

Port of Freetown

Sierra Leone

50,000

The answer to Nigeria's congestion problems has been to develop new ports. The country is already making progress in this area with plans in place for two new container port developments, the port of Lekki and the port of Badagry. The two new ports' container operations will be operated by the global terminal operators ICTSI and APMT respectively. APMT's decision to expand its exposure to Nigeria highlights its confidence in the country, and ICTSI's decision to set up a base in Nigeria highlights that new firms are being enticed into the market.

Both projects will boost Nigeria's container port capacity. The first phase of the port of Lekki is due to be completed in 2015 and will start to offer an annual box throughput capacity of 1.8mn TEU. The plan is for this capacity to be expanded to finally reach up to 6mn TEU.

The new green field mega-port adjacent to the planned Free Trade Zone at Badagry is scheduled to open in 2016. The port will be deep-water and therefore able to handle larger container ships than those currently serving the routes linking Nigeria to the world. The facility will be connected to the Benin-Lagos Expressway.

Internal Transport Network Undeveloped And No Impetus To Invest

BMI highlights that although Nigeria is investing heavily in its port sector, more must be done further up the supply chain, as Nigeria's internal transport network is under-developed. According to data from the Global Economic Forum's Global Competitiveness Report, Nigeria's road and rail network scores low. Out of the seven Sub-Saharan African states that BMI is analysing, Nigeria's road network ranks last and its rail network ranks second to last (no data is available for Angola).

We note that this lack of investment in the country's internal transport network means that Nigeria is in common with its fellow West African state of Ghana. BMI believes that the reason why West African states' internal logistics networks are underdeveloped when compared with Southern, Middle and East African states is that there has been little impetus to develop.

In the case of Nigeria and Ghana, the major commercial centres for both countries are in the south on the coast, while the north of the country is relatively poorer. BMI also highlights that unlike Southern, Central and East African states, where ports not only deal with domestic logistics needs but also function as gateways into the landlocked hinterland, in West Africa there has been little development in coastal nations developing a role as transit points for their hinterland neighbours.

Lower Demand In The West

Africa Regional Breakdown Average GDP Per Capita 2013f (US$)

The reason for this is the low levels of demand from these hinterland states in West Africa, where the populations are relatively sparse and also poor. BMI highlights that in regional GDP per capita, West Africa lags the other regions.

Potential Transhipment And Export Role

Nigeria does, however, in BMI's view, have potential to develop as a transhipment point for West Africa. Although, as highlighted, West Africa's consumer outlook is likely to lag that of other regions, the countries based along West Africa's coast outperform those, for understandable reasons, in the hinterland. BMI believes that in the autos sector, therefore, Nigeria's ports could offer transhipment options for these other West African states, especially as the prospect of bigger ships being able to pull in becomes a reality.

Coast Over Hinterland

Africa 2013f GDP Per Capita (US$)

BMI highlights that when a country's growth outlook is attractive enough, importers will find a way through, no matter what the hurdles are. Fortunately for importers into Nigeria, the country is relatively easy to import into. Nigerian importers benefit from the fact that it is both relatively quick and cheap to import into the country. Nigeria is ranked in joint second place with Kenya in comparison with seven Sub-Saharan African states with the lead time for imports taking four days. This comparative speed of imports plays a factor in keeping import costs down, with Nigeria ranked as the second-cheapest country to import into out of the seven, with box import costs averaging US$1,540 per container.

Cheap And Quick

LHC: Cost To Import (US$ per container). RHC: Lead Time To Import (median case days)

One area that needs to be addressed for Nigeria to further boost the ease of imports is the level of bureaucracy. It requires 10 documents to import goods into Nigeria, ranking the country in joint last position with Tanzania out of the seven Sub-Saharan African states. This is an area that could be easy addressed should the Nigerian government choose to do so.

Bureaucracy Dragging Ease Of Imports Down

Documents To Import (no.)

As noted, Nigeria's automotives sector previously boasted large-scale assembly and manufacturing facilities and BMI believes that there is potential for these to be revived. Should this happen, an autos export role could develop. BMI believes that the relative ease of exports could help autos export potential to develop. Nigeria's cost to export containers stands at US$1,380 per container, ranking it third out of the seven states we are analysing, behind Ghana and Tanzania. It is actually cheaper to export containers than it is to import, but in terms of lead times and the number of documents, the numbers are the same to import or export: four days and 10 documents.

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